Daily Musings and Music of a Euromarket Professional

Uncomfortable as it may be, being aware of sitting on a time bomb shouldn't keep us from being able to laugh about it - and to listen to some music!

Daily musings of a euromarket professional

Tuesday 17 April 2012

17 April 2012 – "All Right Now" (Free, 1970)

17 April 2012 – "All Right Now" (Free, 1970)

Markets remained hazy. Split US close with Apple dragging down the Nasdaq into negative and the S&P into a flat close, while the Dow fared better. Inconclusive US session, as was the European one y’day, with asset classes all jumping around in surprisingly decorrelated manner, just to broadly come back to square 1. Asian session broadly flat. Same for commodities. Note a EUR back on the 31 handle. Biggest overnight news was probably India cutting rates by 50 bp to 8%. Maybe Japan’s pledge to prop up the IMF.
The YPF expropriation by Argentina is, of course, water on the mills of New Normal believers and those in growing subordination of private holders. And an unwelcome blow to Spain’s Repsol (-8% at open with CDS hitting 400) and probably Spain, as a whole, which just didn’t need another front to fight on.

European open undecided to positive with the periphery tightening back, taking especially Spain back trough the 6% mark, ahead of its bill auction. Only slightly averse effect on Bunds & Co (knowing that the contrary was true yesterday, too).
Spain gaining over 10 bp and then extending after issuing slightly more than intended bills (EUR 3.2bn in 12 and 18m bills). The 1 year paper was issued at 2.62%, coming from 1.42% last month, while the 18m price tag rose to 3.11% from 1.71%, both a reflection of the late change in mood. So, yes, bills sold, but they always get sold. Duh! Even for Greece…
Risk appetite nevertheless increasing and then supported by better then expected Apr ZEW figures, which came out higher than last month, having been expected in decline. Good for an additional 0.5% in equities and 50 pips on the EUR/USD cross. Even credit (very heavy since yesterday) eventually started to tighten in a little.
EZ Mar inflation figures showed some resistance to the expected / wished for slide with 2.7% YoY and core at 1.6% (after 1.5%), both a tick above consensus. ECB’s problem….
Greece EUR 1.6bn 3m bills sold at 4.2% (after 4.25%) and EUR 2bn 6m EFSF bills sold at 0.26% (after 0.19% end of Feb)
Mixed bag of US figures (Housing Starts below, but building permits above consensus. Industrial Prod below forecast), rather not positive per se, but unable to break the stride.
Spanish 10s back below 5.90% in the afternoon.
To round up the good news, the IMF has slightly revised upwards its (world) growth outlook.

All cool. All right now…

Talking of risk: One week ahead of the French elections, we noted that France widened pretty much in sync with the weakest periphery yesterday and that the spread to Belgium has come down to probably unwarranted levels (2 YRS average 65, low 11 2 YRS ago, high 215 in Nov).
First day of Eurex’ new OAT future trading didn’t really impress as being awesome with 2600 contracts exchanged on Mon and 3200 today versus about700k Bunds traded every day), resulting in an open interest of 1800. That means that two thirds of the contracts are traded and closed intraday. Hardly a killer weapon for the moment. Can’t really understand the outcry over its introduction, although the timing one week ahead of the first presidential election round may not have been the most “pc” in the world. Then again, France used to pride itself of having launched the first liquid bond future in Europe in the late 80s, which sadly (I traded tons of them) rapidly disappeared after going electronic in 1999 and then fading in importance, given the overall spread compression of all EZ-sovereigns at that time. During those heydays, I never heard anyone complaining that this was a vile speculators instrument.
What seems certain to me, though, is that we’ll see French bonds coming under, at least temporary, pressure as soon as next week, given the actual state of market fickleness, as well as the overly benign representation by all candidates of economic challenges to tackle.
Sarkozy ends first to Hollande in the first round: +20-25 bp, as “known incumbent, but in need to explain future savings / spending”.
Hollande comes first to Sarkozy: +40-50 bp, as in “untested and definitively in need to explain future saving / spending, despite a general acknowledgment that any centre left elected government will be as realpolitik-driven as a centre right one”.
Any other outcome, minimum +75 bp…
And there’s an OAT auction on Thu 03 May, coming after an extended May6day weekend. As unfortunate, as the Spanish auction during Semana Santa.

New issues market starting to get moving again with the European Union benefiting from a better euro-zone feel to raise EUR 1.8bn of 2038 paper at MS +87. Further on the SSA front KfW and the IFC worked on closing USD deals put on rail yesterday evening (KfW USD 4bn 3 YRS MS +5, IFC USD 2bn 5 YRS MS-12), while Lithuania managed to squeeze in a EUR 400m increase of an outstanding 2018 bond at MS +255. In financials, Helaba issued a EUR 1bn 7 YRS Pfandbrief, domestic-targeted as most German covered bonds, but the first EUR covered bond benchmark since end of March.

Interesting to see how static the Core EZ debt has been on all that feel good factors… No reaction, no sell-off… It’s just the periphery that is wagging back and forth…lifting and lowering Risk On and Off flags. Afternoon equity strength didn’t lift the periphery any further, but helped consolidate gains in credit. Commodities about put. Feels like an equity rebound, but not as massive game changing day.

10 YRS Yields: Germany 1,75% (+4); Luxembourg 2,22% (+3); Finland 2,26% (+3); Swaps 2,23% (+3); Netherlands 2,26% (+1); EFSF 2,94% (+3); Austria 2,93% (-1); France 3,01% (unchanged); Belgium 3,39% (-3); Italy 5,46% (-11); Spain 5,86% (-19).

10 YRS Spreads: Luxembourg 46bp (unch); Finland 50bp (+2); Swaps 49bp (unch); Netherlands 51bp (+1); EFSF 118bp (+4); Austria 117bp (-1); France 125bp (+4); Belgium 164bp (-1); Italy 371bp (-8); Spain 410bp (-13).

EUR swap curve 2-5 YRS 47,5bp (+2,5); 5-10 YRS 72,2bp (+1,0) 10-30 YRS 27,6bp (-0,9).
German 2 YRS BKOs close at 0.15% (from 0.14%) and 5 YRS OBLs at 0.70% (from 0.67%)

Main back to 136 (from 144, 5.6% better); Financials at 243 (from 250, 2.8% better); Sovereigns 278 (from 280).

Stoxx Futures at 2304 / +2,7% (from 2243) with the S&P at 1387 (+1,3% from 1369, at European close).
VIX index down to 17.9 from 19.6, yesterday same time.

EUR 1.314 from 1.307.
ECB deposits stable at EUR 745bn after 743bn.
Oil 104,6/118,7 from 102,3/118,8 (+2,2%/-0,1%) . Gold at 1655 after 1649 (+0,3%). Copper at 365 from 361 (+1,1%) . CRB closes 302,5 from 300,9 (+0,5%). Commodities stronger on afternoon Risk On feel, but not outrageously so.
Baltic Dry at 989 from 975. 1000 mark in sight.
All levels European COB 17:30 CET

Not much European data. Spanish housing. EU Feb Construction. US MBA mortgages.
German 2 YRS auction, near record low yields, just as for last week 10 YRS Bunds…

Rest of week:
Germany: IFO on Fri
France: Running up to first round of presidential elections.
Other EU: House prices in Spain
US:, Claims on Thu, Philly FED & Leading Indicators.
Asia: Nothing really on the plate in China, likewise for Japan.

Click link on title or below for today’s musical support:

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